United States

CFPB issues proposed amendments to the mortgage servicing rules

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The Consumer Financial Protection Bureau (Bureau) has proposed additional amendments to the 2013 mortgage servicing rules affecting both Regulation X (which implements the Real Estate Settlement Procedures Act) and Regulation Z (which implements the Truth in Lending Act). The proposed changes impact nine major topics and include sample forms. Comments are due 90 days after the proposal was published in the Federal Register which is March 16, 2015.

The areas impacted by the proposal are:

  • Successors in interest. The proposal includes three changes relating to successors in interests. First, the Bureau is proposing that the mortgage servicing rules apply to successors in interest after the servicer confirms the successor in interest’s identity and ownership interest in the property. Second, the proposal includes rules for how to confirm the status of the successor in interest. Third, the Bureau is proposing that “to the extent the mortgage servicing rules apply to successors in interest, that the rules apply with respect to all successors in interest who acquire an ownership interest in a transfer protected from acceleration, and therefore, foreclosure, under Federal law.”  In other words, once the identity and ownership interest in the property of a successor in interest has been confirmed, the successor in interest would be considered a borrower for the purposes of Regulation X and a consumer under Regulation Z. This would afford the successor in interest all the consumer protections, including those from foreclosure, contained in both regulations. These protections include prompt responses to borrower requests for information, foreclosure avoidance options and loss mitigation.
  • Definition of delinquency. A general definition of delinquency is also being proposed. This definition would apply to all the servicing provisions of Regulation X as well as the mortgage loan periodic statement provisions of Regulation Z. The proposed definition would clarify that “a borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a payment sufficient to cover principal, interest, and if applicable, escrow becomes due and unpaid.”
  • Requests for information. A change in how a servicer responds to requests for information seeking ownership information for loans in trust for which Fannie Mae or Freddie Mac is the trustee, investor or guarantor is also included in the proposal.
  • Force-placed insurance. Included in the proposal are amendments to the forced–placed insurance disclosures. The proposed changes include accounting for the situation when a servicer is obtaining force-placed insurance due to the borrower’s insufficient, rather than expiring or expired, hazard insurance and giving servicers the option to include the mortgage loan account number on the notices required by section 1024.37 of Regulation X. The proposal also includes several technical edits and corrections in this area.
  • Early intervention and loss mitigation. Several changes are being proposed relating to early intervention and loss mitigation, including:
    • Requiring servicers to meet the loss mitigation requirements more than once in the life of a loan if borrowers become current after a delinquency and then become delinquent again
    • Modifying the existing exception to the 120-day prohibition on filing a foreclosure action to allow a servicer to join the foreclosure action of a senior lien holder
    • Clarifying that servicers have a large amount of flexibility in setting the date by which an applicant must return documents or information to complete an application as long as certain conditions are met
    • Clarifying the steps that servicers must take with respect to delaying a foreclosure sale, dual tracking and required dismissal of the action
    • Setting out the timing and content of notices to be provided to the borrower when the servicer receives a complete loss mitigation application
    • Addressing how to obtain and evaluate third-party information as part of a loss mitigation application, and the related required notices
    • Allowing a short-term repayment plan to be offered that is based on the evaluation of an incomplete loss mitigation application
    • Clarifying that documents and information pertaining to a loss mitigation application do not have to continue to be collected once the servicer receives information that confirms the borrower does not qualify for that option
    • Clarifying how loss mitigation procedures apply to a transferee servicer that receives a mortgage loan with a pending loss mitigation application 
  • Periodic payments. In addition, the proposal also clarifies how periodic payments should be treated for consumers who are performing under either a temporary loss mitigation program or a permanent loan modification. Generally, it is proposed that “payments made pursuant to temporary loss mitigation programs would continue to be credited according to the loan contract and could, if appropriate, be credited as partial payments, while periodic payments made pursuant to a permanent loan modification would be credited under the terms of the permanent loan agreement.”
  • Periodic statements. Various issues relating to periodic statements would also be clarified under the proposal. Amendments in this area include periodic statement requirements for loans that have been either accelerated or are in temporary loss mitigation programs or that have been permanently modified. Further the amendment includes information as to when modified periodic statements must be provided and the conditions for discontinuing periodic statements for charged off loans.
  • Small servicer definition. The proposal amends the small servicer definition by excluding certain seller-financed transactions from being counted toward the 5,000 mortgage loan limit used to determine small servicer status. Under the proposal, seller financers that would not count toward the 5,000 mortgage loan limit include “those that provide seller financing for only one property in any 12-month period for the purchase of property that they own, so long as they did not construct a residence on the property and the financing meets certain restrictions.”
  • Technical corrections. Technical corrections to various provisions of Regulation X and Regulation Z are also included in the proposal. 

Look for additional information regarding the proposed amendments in the Bureau’s press release, blog post, and proposal summary.